Following Audit, State Agencies Update Policies Around Noncompetitive Bidding

The Department of General Services and the California Department of Technology are renewing procurement policies and working to ensure data is complete and accurate following a recent audit.

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The Department of General Services (DGS) and the California Department of Technology (CDT) — the state’s two agencies that oversee contracts for goods and services — are changing policies and procedures in the wake of a recent investigation by the auditor’s office, which found nine non-competitively awarded contracts valued at nearly $1 billion could have been avoided through better planning.

The California State Auditor’s (CSA) examination of 27 non-competitively bid contracts approved by DGS and CDT was released on Tuesday, June 20 and found neither department had provided other state agencies with the guidance and oversight to ensure they consistently used competitive bidding.

Nine of the 27 contracts that auditors reviewed, which were awarded from July 1, 2011 through June 30, 2016, could have been competitively awarded, CSA found, while 14 of the 27 contracts failed to demonstrate that the vendor’s price was reasonable.

The extent to which agencies in other states may face similar calls to more closely scrutinize procurement and noncompetitive bidding remains unclear; representatives of national organizations for state auditors and procurement officials were unable to confirm whether the issue is a trend.

Recently, however, at least two other states have identified issues or made changes to their bidding processes.


In Ohio, the Department of Administrative Services (DAS) sought changes to its waiver of competitive selection regularly granted by the state's Controlling Board and applied in cases where IT vendors offer unique solutions not available elsewhere. The Controlling Board approved changes in June requiring DAS to get a minimum of three price quotes before awarding certain contracts; and, if two or less are received, to get Board approval.

Also in June, an audit of the North Dakota Seed Department (NDSD) by the Office of the State Auditor found competitive bidding for improvements to heating and air conditioning systems were exclusionary and questioned more than $31,000 in purchases that were either not made from “mandatory state contracts” or indicated as “made by alternative procurement” but with no approved exemption. NDSD disagreed with some findings but agreed to work with state procurement.

When looking in California, the auditor’s investigation and findings would likely have widened further, Margarita Fernandez, CSA chief of public affairs, told Government Technology — but DGS failed to ensure the State Contract and Procurement Registration System (SCPRS), its longtime statewide contract database, contained accurate data and met the state’s needs.

If SCPRS data had been complete and accurate, Fernandez confirmed, auditors estimated the value of noncompetitive contracts worth more than $1 million during the period surveyed would have risen to at least $44 billion.

Auditors issued a series of recommendations, and DGS and CDT generally agreed with all:

  • The Legislature should require an annual public reporting from DGS of all noncompetitive requests over $1 million, and could require agencies to publicly justify noncompetitive requests in legislative hearings.
  • DGS should immediately ensure agencies enter complete and accurate contract information into the Financial Information System for California (FI$Cal), the new statewide financial management system; modify the system to identify contract amendments; and plan to analyze the data for abuses.
  • DGS should track corrective action plans for contracts to ensure compliance and completion, and create an escalation process for enforcement actions.
  • CDT should also plan to analyze FI$Cal data for potential abuses and track corrective action plans to ensure agencies complete them.
Scott Paterson, interim communications director for CDT, referred Government Technology to the agency’s written response contained within the audit.

In that response, state CIO and CDT Director Amy Tong reminded CSA that several categories of state contracts are exempt from competitive bidding, but said her agency believes the recommendations “will strengthen … oversight of IT and telecommunication procurements,” especially those that are noncompetitive.

CDT committed to create plans within 90 days to track overall usage of noncompetitive contracts, with an emphasis on establishing agency accountability; ensure it requires agencies to document cost justifications from other available vendors; track and monitor corrective action plans; and work to ensure agencies do not repeatedly submit “inappropriate” non-competitive requests after being warned.

In DGS’ response letter, Director Daniel C. Kim said the department will ensure agencies enter complete, accurate information into FI$Cal, and will modify the system to identify and include contract amendments.

The agency agreed to establish procedures within 90 days to scrutinize noncompetitive contracts for potential abuse or overuse; to enhance the State Contracting Manual within 180 days with examples of appropriate and inappropriate circumstances that could justify a noncompetitive request; and committed to evaluating competition-exempt contracts to determine whether additional price justification would be effective.

“This will assist DGS to perform its oversight function, including determining whether process changes should be undertaken and/or additional training and guidance should be provided to agencies,” DGS said in an email response to Government Technology, referring to looking closely at noncompetitive contracts.

DGS also said that it “continually strives to assist agencies with providing accurate and complete contract information” to FI$Cal, and is developing guidelines for reporting accurate information and posting adoption data on its website.

DGS has also developed a new Purchasing Authority Accreditation process, which it is piloting with several state agencies. As a part of this process, DGS’ purchasing authority unit and the Office of Audit Services will review a sample of agency contracts and FI$Cal SCPRS data for accuracy and completeness.

The department also indicated it is now tracking corrective action plans submitted with requests to approve noncompetitive contracts; and within 90 days, will develop an escalation process for enforcement actions.

The CSA's Fernandez said both agencies will be required to update the auditor on their progress toward implementing the recommendations 60 days after the audit’s release, then again after six months and in one year.

CSA will report any recommendations that have not been implemented to the state legislature one year after the audit’s release, Fernandez said, and legislators could choose to question the agencies in an oversight hearing or during annual budget hearings.

DGS and CDT, which oversees contracts for goods and services for large IT projects, transitioned in January 2016 from SCPRS to Fi$Cal.

But the audit also found a pattern of weak oversight from the agencies and a lack of complete and accurate information about state contracts that predated FI$Cal, despite the statewide availability of SCPRS, which DGS created in 2003.

Auditors also found a lack of “formal plans” to regularly analyze FI$Cal data and wrote that it is “unclear” whether the new database will fully solve the state’s “lack of comprehensive contracting data.”

“We have concerns that they need to have processes in place to ensure the accuracy of the information that is entered,” Fernandez said, noting that just 30 percent of agencies required to use FI$Cal have migrated to its use, and that as many as 19 state agencies including Caltrans and the Department of Corrections may be exempted from using it.

For those that enter information manually — an issue with SCPRS as well — this increases the risk of errors, she said.

“Without having the accurate data or the centralized data, it’s difficult to make decisions quickly, or to make decisions without having information about what’s going on with the vendor,” Fernandez added.

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Theo Douglas is assistant managing editor for Industry Insider — California, and before that was a staff writer for Government Technology. His reporting experience includes covering municipal, county and state governments, business and breaking news. He has a Bachelor's degree in Newspaper Journalism and a Master's in History, both from California State University, Long Beach.